Home Loan Guide for First Time Buyers in India

First time home buyer? here is the guide for you [Infographics]

Are you going to be a first-time buyer of home loan in India and want some guidance regarding home loan?

Here is everything that will give you guiding insights into Home loan prospects.

What is a Home Loan?

A home loan is a secured type of loan that is borrowed from banks or NBFCs for purchasing a House. The money is repaid back to the lenders in the form of EMIs.

What are the types of Home Loan?

Joint Home Loan

A joint home loan is a loan that is taken jointly by family members. The family members include parents, spouses, siblings and/or offspring. A Huge amount of loan can be approved easily if the loan is applied jointly. Such loans have tax-benefits. check out our detailed guide on joint loan here.

Home-purchase loan

It is a type of loan which is offered to buy the residential property. Generally, 80 to 85% of the market value of the house you can get.

Land-purchase loan

This is a type of loan that is offered so as to buy the plot on which you are looking to construct a home. You might get around 80 to 85% of the plot value.

Home-construction loan

Home-construction loan is given to those who want to construct a house on the plot who they have already owned.

Home-extension loan

Home-extension loan is given to those who want to expand their existing house. Most of the bank include such a loan in their home-improvement loan.

Home-improvement loan

This is a type of loan which will help you in getting the funds for your house renovation liking painting, repairs, electrical wiring, and water-proofing, etc.

NRI-home loan

Such a loan will help an NRI in buying home in India.

Type of Home Loan Rate of Interest?

There are two types of Interest Rates

Fixed Interest Rates

Here the interest rate is fixed throughout the loan tenure.

Floating Interest Rates

Here the interest rate changes according to the market conditions.

The Five-Step easy Home Loan guide

Home Loan Guide for First Time Buyers in India
The Easiest Home Loan Guide for First Time Buyers in India

How does loan processing works in India

Due to digitization, loan processing in India has become easy. Generally, the banks have the following procedure.

Step 1: Banks will want you to fill the application form along with the required documents.

This is done so as to verify your documents and also to see whether you will be able to pay back the loan amount.

Most of the bank’s representatives for your convenience will visit your home to collect the documents.

Step 2: Banks will require you to pay a processing fee.

This is the fee that is required to be paid for your maintenance of the loan account.

Step 3:  Sometimes bank might call you to their branch for face to face discussion.

This is done to collect more information about you.

Step 4: Verification of the documents

Bank will verify your documents. It might take 1 to 2 days.

Step 5: If the bank finds that all requirements are met, they will sanction the loan. A sanction letter will be sent to the customer. The following details will be checked. 

  • Age
  • Qualification details
  • Income
  • Type of Job he or she is pursuing
  • Experience letter
  • For Businessman, his or her nature of the business will be analyzed
  • The transactions that are made with the applicant’s bank

Step 6: If the loan is approved, an offer letter will be sent stating the loan amount that is approved, the Interest rate on it, type of interest rate, loan tenure, modes of repayment and terms and conditions.

Step 7: An acceptance letter will be signed. This letter has to be signed for the bank’s record.

Step 8: Here all the details regarding the property will be checked by the bank. You have to submit all the property related documents to the bank

Step 9: After the submission of the property documents, the bank will do a legality check.

The bank’s lawyer will check the documents to make sure that it doesn’t have any illegality in the property.

Step 10: The bank will do a thorough check of the site. They will find out the valuation of the property.

Step 11: After the loan agreement has been signed the loan will be disbursed.

How to raise funds to pay for the down payment of your home loan

A down payment is a part payment that you make for the purchase of your home. The remaining part is financed by the bank. The down payment ranges from 5 % to 30%. The more the contribution of you towards the down payment, the lower the interest rates you will be charged to pay on your loan.

Here are the ways to raise funds to pay for the down payment of your home loan

Pradhan Mantri Awas Yojana -PMAY

This scheme was launched by The Prime Minister Narendra Modi in the year 2015 to provide affordable housing to the citizens. According to it, one will be able to get up to 6.5% of subsidy on the home loans. This amount can be used to pay down payments. 

Eligibility for Pradhan Mantri Awas Yojana

Here are the common eligibility criteria for Lower Income Group/Economically Weaker Section (LIG/EWS) and Middle Income Group (MIG – I & II)

  1. The applicant must not have any pucca house in any part of the country in either his/her name or any of his/her family member.
  2. The applicant must not have taken any benefit related to housing scheme from neither the state nor the central government befor.
  3. It is compulsory that at least one female should be the co-owner of the property
  4. The location should be according to the 2011 census town classifications.

Here are the uncommon eligibility criteria:

Lower Income Group/Economically Weaker Section (LIG/EWS)

Household Income: Up to 6 lakhs
Tenure for calculating subsidiary amount: 20 years
Documents required: Aadhar card

 Middle Income Group (MIG – I & II)

MIG-I 

Household Income: 6 to 12 lakhs
Dwelling Unit Carpet Area: Up to 160 Sq Mt
Tenure for calculating subsidiary amount: 20 years
Documents required: Aadhar card

MIG-II

Household Income: 12 to 18 lakhs
Dwelling Unit Carpet Area: Up to 200 Sq Mt
enure for calculating subsidiary amount: 20 years
Documents required: Aadhar card

Can Personal loan be used for a down payment on Home?

Yes, Personal loan can be used to make down payments. However, not all mortgage banks will allow doing that. Personal loans have high-interest rates as compared to home loans.  Also taking a personal loan for paying down payment will affect your credit score badly.

You can get a tax benefit if you are taking a personal loan to clear the down payments on the home. However, this will be only beneficial if you are sure that in future you are going to get a lot of money.

Tax benefits for a first time home buyer

Here are the tax benefits that a first time home buyer can get

  • Section 24 of the Income Tax Act, 1961

Here the tax is deducted on the basis of the interest. The maximum deduction of  2 lakh amount can be claimed yearly.

  • Section 80C of the Income Tax Act, 1961

  Here the tax is deducted on the basis of the principal amount. The maximum deduction of 1.5 lakh amount can be claimed yearly

  • Section 80EE of the Income Tax Act, 1961

Besides the above-mentioned deductions, you can also enjoy additional interest deduction benefits. The maximum deduction of 50 thousand can be claimed yearly.

Other terminologies you should know while availing Home Loan in India

Foreclosure Charges

Foreclosure charges are the charges which are charged when the loan amount has been paid fully instead of paying EMIs before the loan tenure.

Home Loan Transfer Charges / Conditions

These are the charges which are levied when you transfer the balance of your existing loan to another bank. Generally, this is done in the case where the new bank offers a low-interest rate on the same loan amount.

Prepayment of Home Loan

It means that you can pay in advance the loan amount before the loan tenure. You can do it in Part or in Full. Prepayment facility is very beneficial to those who have surplus funds.

Repayment Capacity

Repayment Capacity is the capacity of the concerned person to repay the loan amount in time. The repayment capacity measures provide insight into whether you will be able to pay the loan amount or not in time.

Value of Property

Every bank will send a team of experts on the property site to know the value of the property.  This is done to prohibit the applicants’ form showing the wrong property rate just to get the cheap loans.

MCLR ( Marginal Cost of Funds based Lending Rate ) and Base Rate 

MCLR and Base rate are the lending rate below which the banks can’t lend the money. However, there are few cases where RBI has allowed to provide the loan below the minimum lending rates. 

MCLR Base Rate 
MCLR calculation is based on the marginal cost of funds, tenor premium, operating cost and  cash reserve ratio maintenance cost.Base rate is calculated based on profit,  bank costs, bank deposit rates, cost of funds, operating costs and cash reserve ratio maintenance cost.
Reserve bank of India’s repo rate plays a key role in determining MCLR.Base rate is not depended on MCLR

How LoansXpert can help first time Home buyers? 

At LoansXpert we have a pool of expert advisors and consultants having almost a decade of experience in financial and loan consulting. 

We treat every case of ours with the same energy and enthusiast and study each and every minute aspect of your case’s for better advice on your home loan with the best interest rate possible from the market. We provide end to end consultation and advice for your home loan in Pune

Useful home loan tips for the first timer

  • Keep your banking clear and proper
  • Check your credit history before applying for the home loan
  • Finalize your budget and a preffered area where you are planning to buy a flat.
  • Check your income and expenses to figure out the affordability
  • Check your eligibility using various Home Loan eligibility calculator available online.
  • Compare Home Loans rate of interest of different banks
  • Compare the other charges and conditions associated with the home loan of different banks

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